GM

Global Marketing Management Chapter 2 Global Economic Environment
Warren J. Keegan
Keegan: Global Marketing Management Chapter 2/ 1
Overview
The World Economy An Overview Economic Systems Stages of Market Development Stages of Economic Development Income and Purchasing Power Parity The Location of Population Marketing and Economic Development Balance of Payments Trade Patterns Summary
Keegan: Global Marketing Management
Chapter 2/ 2
Learning Objectives
Understand the main differences between economic systems found around the world Learn ways of classifying countries by their market development Understand consumption patterns in different countries Know the main regional economic co-operation agreements
Chapter 2/ 3
The World Economy - Overview

During the last 50 years:
Emergence of global markets Integration of world economy
Capital movements are driving force Production is uncoupled from employment Macroeconomics of individual countries no longer control economic outcomes
Economic Systems
Three types of economic systems:
Capitalist Socialist Mixed
Classification based on dominant method of resource allocation

Market allocation Command allocation Mixed system
Economic Systems Market Allocation

Relies upon consumers to allocate resources Role of state
Promote competition Ensure consumer protection
Predominately market economies:

US, Western European Countries, Japan
Chapter 2/ 6
Economic Systems Command Allocation

State has broad powers to serve public interest
Decides which products to make Decides how to make them
Elements of marketing mix are not used as strategic variables Countries that relied upon command allocation systems for decades: China, former USSR, India
Economic Systems Mixed Systems

In reality, no pure market or command allocation systems among the worlds economies In OECD countries, the portion taxes ranges from 32% GDP in US to 64% in Sweden
Chapter 2/ 8
Economic Systems
Index of Economic Freedom (Source: Heritage Foundation)
Free:
Hong Kong, Singapore, New Zealand, , Bahrain-?, Luxembourg, US,
Mostly Free
Canada, Chile, El Salvador, Taiwan
Mostly Unfree
Cambodia. Mexico-?, Slovak Rep., Slovenia, Swaziland
Repressed
North Korea, Iraq, Libya, Somalia, Cuba
Stages of Market Development

Countries/markets are at different stages of development GNP per capita provides a useful way of grouping countries into 5 categories Categories are a useful basis for:
Market segmentation Target marketing
Chapter 2/ 10
Country Income Segmentation

$9,656 High Income (Advanced Countries) -Triad -Others + $3,126 Upper Middle Income (NICs) + $786 < $768 Lower Middle Income (DCs) Lower Income (LDCs) Basket Cases (BCs)
Chapter 2/ 11
Global Income & Population 2001

Income World High Up-Mid GNP (billion) GNP/ Capita % Population % GNP (Millions) Pop. 100 6,134 80 7 10 3 983 449 2,418 2,284 100 16 7 39 37
Chapter 2/ 12
$30,251 $4,931 $24,280 $24,693 $2,111 $4,476 $1303 $355
Low-Mid $3,150 Low $810
Top 10 GNP-2000
(in millions)
1. United States 2. Japan 3. Germany 4. France 5. United Kingdom 6. China 7. Italy 8. Brazil 9. Canada 10. Spain
$8,259,358 4,427,104 2,127,086 1,446,515 1,359,764 1,179,345 1,168,771 850,852 602,158 544,944
Chapter 2/ 13
Gross domestic product 2010-world bank (millions of US dollars)

1 United States $14,582,400
2 China $5,878,629 3 Japan $5,497,813 4 Germany $3,309,669 5 France $2,560,002 6 United Kingdom $2,246,079 7 Brazil $2,087,890 8 Italy $2,051,412 9 India $1,729,010 10 Canada $1,574,052
Stages of Economic Development

Stages of market development based on GNP per capita correspond with the stages of economic development
Low & lower-middle-income countries = less developed countries (LDCs) Upper- middle-income countries = industrializing countries High-income countries = advanced, industrialized & postindustrial
Chapter 2/ 15
Stages of Market Development High Income Countries

GNP per capita above $9,656 Norway at $38,070, US at $20,953 Post-Industrial Countries
Importance of service sector more than 50% of GNP Ascendancy of knowledge over capital
Chapter 2/ 16
Stages of Market Development Upper Middle Income Countries

GNP per capita between $3,126 and $9,656 Characteristics
Rising wages High rates of literacy Advanced education Experience rapidly, export-driven economic growth Become formidable competitors
Stages of Market Development Lower Middle Income Countries

GNP per capita between $785 and $3,125 Characteristics
Early stages of industrialization Expanding consumer markets
Major competitive advantage in the production of mature, standardized, labor-intensive products
Chapter 2/ 18
Stages of Market Development Low Income Countries

Income per capita less than $785 Characteristics
Limited industrialization High birth rates Low literacy rates Heavy reliance on foreign aid Political instability Concentration in Africa, south of the Sahara
Chapter 2/ 19
Stages of Market Development Basket Cases

A country with economic, social & political problems that are so serious they make the country unattractive for investment and operations Low-income, no-growth countries (E.g.. Ethiopia) One-time growing & successful countries that have become divided by political struggles
Chapter 2/ 20
Income and Purchasing Power (1)

Income
Single most important indicator of market potential
Purchasing Power Parities

Comparison of goods & services that can be bought with local currency in different countries
Gross National Product (GNP)

Sum of the money values of all final goods & services produced during a year
Chapter 2/ 21

Top 10 Nations ranked by GNP/Capita (2000) Luxembourg Norway Singapore Switzerland Kuwait Japan Denmark United States Hong Kong Austria
Chapter 2/ 22
gdp per capita-IMF 2010

Rank Country Hong Kong World[6] European Union[4] 1 2 3 4 5 6 7 8 9 10 Luxembourg Norway Qatar Switzerland United Arab Emirates Denmark Australia Sweden
US$ 31,514 9,238 32,537 108,952 84,144 74,901 67,779 57,884 55,986 55,672 49,183 46,986 46,860
Chapter 2/ 23
Netherlands
United States

Top 10 Nations ranked by GNP/Capita adjusted for Purchasing Power (PPP)
Luxembourg United States Singapore Norway Hong Kong Switzerland Denmark Japan Belgium Austria
Chapter 2/ 24
Gdp @ PPP-IMF 2010

Rank Country Hong Kong European Union[4] World[6] 1 2 3 4 5 6 7 8 9 10 Qatar Luxembourg Singapore Norway Brunei United Arab Emirates United States Switzerland
Intl. $ 45,944 30,455 10,922 88,222 81,466 56,694 51,959 48,333 47,439 46,860 41,950 40,973 39,764
Chapter 2/ 25
Netherlands Australia
The Location of Population-2000

Country Population (thousands) 1,268,121 1,015,287 275,746 210,785 170,661 GNP/Capita (thousands) 930 424 29,953 1,176 5,535 % World GNP 3.9 1.4 27.3 0.7 2.8
China India United States Indonesia Brazil
Chapter 2/ 26
Population 2010 (national sources) & 2050 (US Census)

rank country 2010 population % world 2050 (000 s) China, People's Republic ofn2
1,339,724,852
19.22%
1,303,723
2 3 4 5
India
1,210,193,422
17.37% 4.48% 3.41% 2.74%
1,656,554 439,010 313,021 260,692

Chapter 2/ 27
United States 312,438,000 Indonesia Brazil 237,556,363 190,732,694
Marketing & Economic Development

Does marketing play an important role in the economic development of a country? Is marketing only relevant to conditions that apply in affluent, industrialized countries? The marketing process of focusing an organizations resources on environmental opportunities is a process of universal relevance
Balance of Payments
A record of all economic transactions between residents of a country & the rest of the world Capital Account records
Long-term direct investment, Portfolio investment, Other short & long-term capital flows
Current Account records

Trade in merchandise & service, Private gifts, Public aid transactions between countries
India-capital account-World Bank

Gross fixed capital formation, private sector (% of GDP) Private capital flows, total (BoP, current US$) Private capital flows, total (% of GDP) Portfolio equity, net inflows (BoP, current US$) 24% $49,869,991,944 3% $39,971,506,391
Chapter 2/ 30
India current account-IMF
Units U.S. dollars Percen t of GDP
Scale Billions
2009 -35.76 -2.82
2010 -42.80 -2.62
2011 -40.27 -2.18
2012 -43.95 -2.18
2013 -41.74 -1.86
2014 -50.43 -2.03
2015 -65.95 -2.40
2016 -86.72 -2.86
Chapter 2/ 31
Trade Patterns
World merchandise trade has grown faster than world production during the last 50 years Services Trade
The fastest- growing sector of world trade Top 5 exporting countries
United States Germany Japan China France
Top 5 importing countries

United States Germany Japan United Kingdom France
Chapter 2/ 32
India 2009 trade (million US$) -WTO

Merchandise exports, f.o.b. $164 907 Merchandise imports, c.i.f. $257 202 Commercial services exports $90 193 Commercial services imports $80 274
Rank in world trade, 2009 Merchandise Commercial services Exports 21 12 Imports 14 11
Chapter 2/ 33
India Exports & Imports 2009

Breakdown in economy's total exports By main commodity group (ITS) Agricultural products Fuels and mining products Manufactures By main destination 1. European Union (27) 2. United Arab Emirates 3. United States 4. China 5. Hong Kong, China 20.5 14.4 10.8 5.9 4.0 10.2 20.6 66.0 Breakdown in economy's total imports By main commodity group (ITS) Agricultural products Fuels and mining products Manufactures By main origin 1. European Union (27) 2. China 3. United Arab Emirates 4. United States 5. Kingdom of Saudi Arabia 14.4 11.5 7.4 6.0 5.4 5.6 37.6 46.6
Chapter 2/ 34
Degree of economic integration

stage Abolish Tariffs/quota s Common tariff/quota Factor movements harmonizatio n
Free Trade Area Yes
No
No
No
Customs Union
Yes
Yes
No
No
Common Market
Yes
Yes
Yes
No
Economic Union Yes
yes
yes
Yes
Chapter 2/ 35
Regional economic organizations

Europe North America Asia Latin America Africa-Middle East
Chapter 2/ 36
Europe
EU Lome convention EEA CEFTA
Chapter 2/ 37
North America
NAFTA
Chapter 2/ 38
Asia
SAARC Asia-Pacific Economic Cooperation ASEAN
Chapter 2/ 39
Latin America
Andean Group Southern Cone Common Market Caribbean Community & Common Market SICA FTAA
Chapter 2/ 40
Africa-Middle East
Economic Community of West African States East African Cooperation Society South African Development Coordination Conference Cooperation Council of the Arab State of the Gulf Arab Maghreb Union & Arab Cooperation Council
Summary
Economic environment is major determinant of global market potential & opportunity World economies can be categorized into market allocation systems, command allocation systems, & mixed systems For many products, most important indicator of market potential is income
Chapter 2/ 42

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Global Marketing Management Chapter 2 Global Economic Environment

Keegan: Global Marketing Management

Keegan: Global Marketing Management

The World Economy - Overview

Classification based on dominant method of resource allocation

Economic Systems Market Allocation

Predominately market economies:

Keegan: Global Marketing Management

Economic Systems Command Allocation

Economic Systems Mixed Systems

Keegan: Global Marketing Management

Stages of Market Development

Keegan: Global Marketing Management

Country Income Segmentation

Keegan: Global Marketing Management

Global Income & Population 2001

$30,251 $4,931 $24,280 $24,693 $2,111 $4,476 $1303 $355

Low-Mid $3,150 Low $810

Keegan: Global Marketing Management

Keegan: Global Marketing Management

Gross domestic product 2010-world bank (millions of US dollars)

Stages of Economic Development

Keegan: Global Marketing Management

Stages of Market Development High Income Countries

Keegan: Global Marketing Management

Stages of Market Development Upper Middle Income Countries

Stages of Market Development Lower Middle Income Countries

Major competitive advantage in the production of mature, standardized, labor-intensive products

Keegan: Global Marketing Management

Stages of Market Development Low Income Countries

Keegan: Global Marketing Management

Stages of Market Development Basket Cases

Keegan: Global Marketing Management

Income and Purchasing Power (1)

Purchasing Power Parities

Gross National Product (GNP)

Keegan: Global Marketing Management

Income and Purchasing Power (2)

Keegan: Global Marketing Management

gdp per capita-IMF 2010

Income and Purchasing Power (3)

Keegan: Global Marketing Management

Gdp @ PPP-IMF 2010

The Location of Population-2000

China India United States Indonesia Brazil

Keegan: Global Marketing Management

Population 2010 (national sources) & 2050 (US Census)

17.37% 4.48% 3.41% 2.74%

1,656,554 439,010 313,021 260,692

United States 312,438,000 Indonesia Brazil 237,556,363 190,732,694

Keegan: Global Marketing Management

Marketing & Economic Development

Current Account records

India-capital account-World Bank

Keegan: Global Marketing Management

India current account-IMF

Units U.S. dollars Percen t of GDP

2009 -35.76 -2.82

2010 -42.80 -2.62

2011 -40.27 -2.18

2012 -43.95 -2.18

2013 -41.74 -1.86

2014 -50.43 -2.03